Ecobuild Conference: Fiscal Incentives for Solar Use

Originally Appeared in Green Building News

If threats of global warming and dangerous greenhouse gases aren't enough reason to seek alternative sources for energy, federal business and residential solar tax incentives can encourage homeowners and corporations to purchase solar energy systems.
(12/19/2007)
By Michelle M. Murphy
If threats of global warming and dangerous greenhouse gases aren't enough reason to seek alternative sources for energy, federal business and residential solar tax incentives can encourage homeowners and corporations to purchase solar energy systems.
A tax credit can provide significant savings because it reduces the amount of income tax a person has to pay. Unlike a deduction, which reduces the amount of income subjected to tax, a tax credit reduces the tax itself. Credits similar to the consumer credits are also available to businesses that install qualifying solar equipment.
Solar business energy tax credits for commercial and industrial purchasers are applicable to the following technologies: solar water heat, solar space heat, solar thermal electric, solar thermal process heat, photovoltaic, geothermal electric, fuel cells, solar hybrid lighting with fiber optics, direct-use geothermal and microturbines.
The federal business tax credit amount for solar, solar hybrid lighting and fuel cell systems is 30 percent of the cost, and 10 percent of the cost for microturbines and geothermal systems. There are no maximum specified incentives for most technologies, but there is a cap of $500 per 0.5 kW for fuel cells and $200 per kW for microturbines.
Corporate depreciation is applicable to commercial and industrial purchases of solar energy. Under the Modified Accelerated Cost-Recovery System, businesses can recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated.
For solar, wind and geothermal systems installed after 1986, the MACRS is five years. With the passage of the Energy Policy Act of 2005, fuel cells, microturbines and solar hybrid lighting technologies are in the five-year class as well.
For federal residential solar and fuel cell tax credit, eligible sources include solar water heat, photovoltaic systems, fuel cells and other solar electric technologies, which are credited up to 30 percent of the cost. Maximum incentives are $2,000 for solar electric and solar water heating and $500 per 0.5 kW for fuel cells. Excess credit may be used the succeeding tax year.
Installation and equipment requirements specify that solar water heating systems must be certified by the Solar Rating and Certification Corporation or by a comparable entity endorsed by the state. At least half of the energy used to heat the residence's water must be solar in order for the solar water heating property expenditures to be eligible.